After a fairly positive month of March where Bitcoin reached its new ATH of $73,750, the cryptocurrency market more or less slowed down during the month of April. A fall which continued at the beginning of May, with a decline observed in the prices of flagship cryptos. Here are the 3 main reasons for this decline.
The fluctuations at the start of May 2024
While all observers were very enthusiastic about the approach of the halving, the cryptocurrency market had a rather complicated month of April.
Having remained above the $60,000 support level for a long time, the bitcoin (BTC) finally fell 5.76% to achieve a unit price of $57,480 THE 1er May 2024.
At the same time, the entire market followed this downward movement, with a drop of 4.12% of the overall marketcapestimated at $2.08 trillion. At their respective levels, other major cryptocurrencies also declined. Ether had notably fallen by 5% to reach $2,892.
Source : TradingView
The same is true for Solana, BNB and XRP, with respective drops of 6.19%, 5.13% and 1.47%.
The downward pressure has calmed somewhat in recent hours. However, observers show some concern about the different causes behind the fall of cryptos.
The 3 main causes of the decline in the cryptocurrency market
Several key events in crypto news have led to this drop in prices. These include the risk aversion of investors in view of the FED's decision on interest rates, the increasingly significant outflows of Bitcoin ETF and liquidations of long market positions.
The FED's decision on interest rates
The pessimism observed among the majority of experts in anticipation of the decision of the United States Federal Reserve regarding interest rates was one of the primary causes of the recorded price movements.
It must be said that questions relating to inflation tend to impact risky assets like cryptocurrencies. The year 2024 was expected to be decisive for the regulation of inflation in the United States.
However, with the bad news that has reached us in the first few months, investors have resigned themselves to the idea of seeing a possible rate reduction in the coming months.
As revealed by Cointelegraphsome traders were even inspired by the tool CME FedWatch to estimate the probabilities of a rate cut at 9.4% for the June 12against 52.13% And 39.2% respectively for the months of September and November.
In other words, we will have to wait a little longer in the hope of seeing a first rate cut a little later in the year. Faced with this, investors have developed a certain risk aversion, massively selling their crypto holdings.
Since then, the FED has revealed that it will maintain its interest rates between 5.25% and 5.5%. Which confirms the predictions.
Outflows from spot bitcoin ETFs
After their approval last January, the spot bitcoin ETF experienced record inflows, pushing bitcoin towards its new all-time high. However, in recent weeks, investors have massively withdrawn their capital from these financial products.
According to data relayed by Cointelegraph, ETFs showed a cumulative flow of $11.942 billion 1er may, or a drop of 10% with respect to the local vertex of $12.92 billion from a week ago.
Outgoing flows increased further after the BTC correction, with more than 500 million daily exits. At the same time, theiShares Bitcoin Trust (IBIT) of BlackRock has not recorded any BTC entries during 5 consecutive days.
May 1 Update:#Grayscale decreased 404 $BTC(-$23.2M) and currently holds 296,714 $BTC($17B).
9 ETFs(Including #Grayscale) decreased 1,950 $BTC(-$111.93M).#Blackrock has not added $BTC for 5 consecutive days.https://t.co/UZZeBE5TTa pic.twitter.com/idDNmsBT98
— Lookonchain (@lookonchain) May 1, 2024
A trend that reflects the caution of investors with recent market movements.
Liquidations of long positions
The significant liquidations of long positions compared to short positions are also a cause of the underperformance of cryptos at the start of the month. In general, such a context reflects some selling pressure for the asset, thus causing its price to fall.
It is precisely at the level of the crypto derivatives market that this has been most observed, with more than $381.7 million in liquidations 1er May, of which $307 million in long positions. Which also fueled the price pullback.
Although post-halving expectations are not yet met, cryptocurrencies are showing some resilience at the moment. Enough to relaunch the debates for the coming weeks.
